The proliferation of illegal credit providers is not just a regulatory failure but a symptom of the broader inequalities entrenched in the country’s financial system
South Africa faces a crisis in its credit market. With more than 4,000 unregulated credit providers exploiting vulnerable consumers, the country’s financial sector has become a predatory landscape for those struggling under the weight of economic hardship. These illegal lenders, or mashonisas, operate outside the formal financial system, charging exorbitant interest rates and using dubious collection tactics.
As Leon van Pletzen, chief executive of Microfinance South Africa, warns, “Consumers don’t have access to fair and legal credit providers,” which leaves them desperate and at the mercy of these illegal operators. “They are trapped in a debt spiral,” she explains, highlighting how the rising cost of living has driven many into the arms of predatory lenders.
But this crisis is not simply about rogue lenders or poor regulation; it reflects a much deeper issue rooted in South Africa’s history of racial capitalism, inequality and uneven development. The fact that so many South Africans are forced to rely on these illegal lenders is indicative of a financial system that has failed the country’s most vulnerable citizens.
Professor Patrick Bond’s analysis of capitalist crisis and uneven development provides crucial insight into understanding this crisis. He argues that South Africa’s financial system has long been shaped by deep-seated inequalities, a legacy of colonialism and apartheid. These systems of oppression concentrated wealth in the hands of a few, leaving the majority of South Africans excluded from the formal economy. “The extreme form of uneven development of South Africa’s productive forces … profoundly affected modes of financial innovation,” Bond notes, because financial institutions created products designed to exploit, rather than uplift, low-income citizens.
Microfinance, once heralded as a solution to financial exclusion, has instead exacerbated the problem. Ajay Banga, World Bank president and a proponent of microfinance, has long championed financial inclusion as a tool to empower the poor. But, as Bond points out, this vision of microfinance is deeply flawed. The partnership between Net1’s Cash Paymaster Services (CPS) and Mastercard — led by Banga — preyed on welfare recipients by using their social grants as collateral, offering high-interest microfinance loans and insurance products that left many with next to nothing by the end of the month. As Van Pletzen notes, “The number of 4,000 unregulated lenders can actually be more,” indicating how deep the crisis goes.
The problem extends beyond the microfinance sector. As Bond highlights, South Africa’s financial system is deeply tied to a “minerals-energy-finance complex” in which corporate interests dominate the economy. This complex has led to financial innovation that exacerbates existing inequalities, with financial institutions developing products that exploit low-income borrowers under the guise of innovation. Even the state has been complicit in this exploitation, as the regulatory response has often been tepid. Bond argues that Pretoria’s “state regulatory and prosecutorial laziness” has contributed to the unchecked growth of predatory lending.
Resistance from below has been one of the most important responses to this crisis. Historically, South Africans have fought against financial exploitation. From the 1980s anti-apartheid sanctions, which targeted banks financing the apartheid regime, to the “bond boycotts” of the late 1980s and early 1990s, where black people refused to pay mortgages on poorly built homes, civil society has consistently challenged financial oppression, as stated by Bond. More recently, the Black Sash movement successfully fought against Net1 and CPS’s, forcing CPS into bankruptcy and halting its abuse of social grant recipients. CPS had been hired by the South African Social Services Agency to pay the grants.
These examples of resistance are critical in shaping the conversation about what comes next. The main question now is whether there are broader demands that could fundamentally reshape South Africa’s financial landscape. Should financial services, including access to credit, be considered a basic right? Could state-backed, subsidised credit services and lower interest rates offer a more equitable solution for the country’s most vulnerable citizens? These are not just hypothetical questions — they are urgent demands that civil society could mobilise around.
As Bond points out, “We have much to learn from South Africa’s many civil society campaigns”. These movements, such as the “Red October” financial reform campaign led by the South African Communist Party in the late 1990s and the Black Sash social welfare movement, have shown that it is possible to challenge the financial institutions that exploit low-income South Africans. But, for any meaningful change to take place, there needs to be a sustained push from below to turn financial services into a public utility rather than a tool for exploitation.
The failure of the state to regulate illegal lenders or to provide affordable financial alternatives reflects deeper systemic issues. As Van Pletzen explains, “The cost of compliance and understanding compliance is very difficult for these illegal credit providers,” leaving many smaller lenders outside the formal system. But the burden of reform should not fall on small lenders alone — larger financial institutions and the state must be held accountable for creating a system that prioritises profit over people.
The stakes are high. Without serious reform, South Africa risks deepening the already vast divide between the rich and the poor. As Bond argues, the country’s financial system is not just a reflection of its economic reality, but a driver of inequality. The rise of predatory credit providers is a symptom of this broader problem, and the solution must go beyond mere regulation. What is needed is a radical rethinking of how financial services are provided, with an emphasis on making credit a right rather than a privilege.
As civil society continues to resist these predatory practices, the push for financial justice must become louder, demanding a system where financial services are accessible to all. South Africa’s history of resistance offers a roadmap for how this can be achieved, but it will require sustained pressure to transform the financial system from one of exploitation to one of empowerment.
Thabo Motshweni is a PhD candidate at the Department of Sociology and research intern at the Centre for Social Change and Centre for Sociological Research and Practice at the University of Johannesburg.